(paragraph 92(b))

BC253 Academic research, outreach performed and feedback received throughout the project highlighted that the main concern associated with lessor disclosure in IAS 17 was the lack of information about a lessor’s exposure to credit risk (associated with the lease payments receivable from the lessee) and asset risk (associated with the lessor’s residual interest in the underlying asset). Particularly for leases classified as operating leases, lessors could retain significant residual asset risk and little, if any, information was generally available about that exposure to risk in the financial statements.

BC254 A decline in the market value of, for example, leased equipment and vehicles at a rate greater than the rate the lessor projected when pricing the lease would adversely affect the profitability of the lease. Uncertainty about the residual value of the underlying asset at the end of the lease is often a lessor’s primary risk. Accordingly, IFRS 16 requires a lessor to disclose information about how it manages its risk associated with any rights it retains in the underlying asset. The IASB also noted that disclosing information about residual asset risk will also provide users of financial statements with useful information about the distribution of risk for a lessor between credit risk relating to lease payments receivable and residual asset risk related to the interest in the underlying asset.